The eve of China’s nineteenth party congress brought promising news for Chinese fintech: Qudian, a new loan and microlending platform for consumer and small business, jumped twenty-two percentage points during its IPO debut on the New York Stock Exchange. [1] The company generated $900 million (USD) in its initial offering, demonstrating that investors see a bright future for Asian fintech, particularly in China. [1]
Before the congress commenced, the People’s Bank of China planned to reduce the required reserve ratio for lenders that engage in “inclusive finance,” or loans issued to small businesses or consumers with little access to bank credit. This action contrasted earlier regulations in response to fraudulent and uncontrolled online P2P lending networks. The new move opened the door for microlending platforms like Qudian, whose consumer base mostly consists of young Chinese people under the age of thirty-five. Qudian primarily provides revolving credit to about seven million young Chinese consumers on its Alibaba-backed digital investment platform. [2] It is often difficult for small or first-time borrowers in China to get access to traditional finance, and thus companies like Qudian overcome this issue.
Qudian is one of the many players in China’s rapidly expanding fintech market. Alibaba Group’s Ant Financial, which provides data to Qudian, continues to reign as the world’s largest mobile and online payments platform. [3] China currently commands the largest share of fintech investments in the world, amounting to over $9 billion (USD). [4] Digital payments comprise nearly two-thirds of non-cash payments in China, outnumbering traditional credit card payments, and about forty percent of Chinese consumers make payments online. Chinese tech giants (Baidu, Alibaba, and Tencent) continue to invest in growing technologies essential to mobile finance, such as blockchain, and develop platforms that integrate financial and non-financial services for their consumers.
The competition between these giants is fueled by China’s burgeoning middle-income base with a rising demand for wealth management tools. China falls behind the EU, Japan, and US in household debt-to-GDP, (in 2016, household debt accounted for less than forty-five percent of GDP) indicating that China has not yet propelled its economy towards its desired consumption levels. [1] By appealing to Chinese youth who are increasingly consumption-driven, Qudian is helping pull China out of the early stages of its consumer credit market. Digital finance platforms like Qudian that target younger consumers have an expected growth as high as seventy percent. [4]
China’s regulatory environment will need to catch up with the growth of digital finance without stifling consumption and borrowing. The government plans to launch a nationwide Social Credit System, which will assign credit scores to every citizen and business based on their financial habits. Right now, the government grants licenses to a few private companies to develop their own credit scoring systems.
What does the future of Chinese fintech look like? Chinese fintech is going global. China’s tech giants are equipped with the capital and IT infrastructure to internationalize through investment ventures. For example, Alibaba has made acquisitions and expansions in Southeast Asia, buying smaller online payment providers in these areas and gaining banking licenses. The exponential rise in smartphone use in these regions makes it the perfect environment for Chinese fintech to disrupt. Chinese tech companies are creating opportunities for Chinese tourists and expats to continue using Chinese online financial services abroad by working extensively with global payment providers.
It remains to be seen how Chinese firms will compete with the likes of Google, Amazon, and more. At its current pace, however, China is at least on track to dominate fintech in the Asian sphere.
[1] Ren, S. (2017 19 OCT) Party On, Chinese Consumers
https://www.bloomberg.com/news/articles/2017-10-18/qudian-shows-china-s-middle-class-consumers-are-too-big-to-fail
[2] Derrick, J. (2017 19 OCT) Qudian, The Latest Chinese IPO, Wins By Addressing The Undeserved
https://www.benzinga.com/analyst-ratings/analyst-color/17/10/10199928/qudian-the-latest-chinese-ipo-wins-by-addressing-the-un
[3] Kwan Yuk, P. (2017 18 OCT) Chinese fintech Qudian surges in US IPO debut
https://www.ft.com/content/2ca030f1-4cf5-363d-9c72-de19b189f070
[4] Dai, S., Jing M. (2017 25 OCT) A glimpse at how Qudian and China’s online micro lenders revolutionise financing
http://www.scmp.com/tech/start-ups/article/2116924/glimpse-how-qudian-and-chinas-online-micro-lenders-revolutionise
Edited by Luke Doyle (BSc Economics and Economic History)
